Balancing act: Higher capital expenditure also comes with lower dividends

Mumbai: Indian companies were less generous with dividends in FY24 compared to the previous 9 years, as average capacity utilisation remained higher than the long-term average due to increased capital expenditure. The dividend payout ratio stood at 34% in FY24, down from 43% in FY23 and 37% in FY22. Including buybacks, the payout was 38% in FY24, compared to 44% in FY23 or 41% in FY22.

The dividend payout ratio is the proportion of a company’s earnings that is paid out as dividends to shareholders. This payout is lower at times when companies spend more on expansion. Companies in mature industries with higher cash flows have a higher dividend payout ratio. Around 1,300 companies paid out dividends of ₹4.15 lakh crore in FY24, while their standalone net profit was ₹12.24 lakh crore. Additionally, 41 companies spent around ₹50,750 crore on share buybacks in FY24. The dividend paid in FY23 was ₹4.44 lakh crore, while the money spent on share buybacks was ₹21,500 crore.

According to analysts, investments in several new projects are picking up pace, and companies are allocating more funds for expansion.
“After a long time, capital expansion has picked up pace across many industries in India,” said Gaurav Dua, head of capital markets strategy at Sharekhan.

What the top 15 groups paid

“As a result, it is not surprising to see a decline in dividend expense, as the money will be needed to fund expansion,” Dua said.

India’s top 15 corporates paid out an average of 43% of their profits as dividends in FY24, down sharply from the 75% and 44% paid out in the previous two fiscals. Tata Group led the list with a dividend payout of ₹32,000 crore, though it was 38% lower than the previous year. Tata Consultancy Services (TCS) paid out a dividend of ₹42,090 crore in FY23, up from ₹26,426 crore in FY24. Shiv Nadar’s HCL Group paid out a dividend of ₹14,120 crore in FY24, up from ₹13,035 crore in FY23.

Anil Agarwal’s Vedanta Group paid out nearly ₹11,000 crore in FY24, down 84% from the previous year’s dividend of ₹69,997 crore. The payout ratios of Mahindra and Bajaj groups declined marginally in FY24. On the other hand, the payout ratios of Bharti Group, Aditya Birla Group, Sun Pharma, Hinduja Group and Torrent increased significantly.

“Last year, there was massive wealth creation in the stock market, which led many promoters to allocate more money for capital expenditure instead of paying dividends,” said G Chokkalingam, founder and CEO of Equinomics Research. “Also, some large companies rewarded shareholders through buybacks instead of dividends in FY24.”

Speaking at a recent NCAER event, chief economic adviser V Anantha Nageswaran noted a reduction in surpluses by the private sector, indicating a recovery in private capital expenditure. According to India Ratings and Research, private investment proposals approved by banks rose by nearly ₹1 lakh crore to ₹3 lakh crore in FY24.